MetLife Exits Market: What Now?

Instability in the Long Term Care Insurance Market puts pressure on the Consumer

An unexpected announcement by Met Life that they will exit the long term care insurance market in less than two months stunned an industry that has been forced to endure an escalating series of negative announcements over the last three years. The industry has worked for years to arrive at the point when the Baby Boomers would begin crossing over into retirement age and long term care insurance policy sales should be booming. But instead the industry has been set back by decreasing sales, rate increases, blocks of business being taken over by state risk pools, and now the sudden departure of one of the leading carriers and brand names for retirement and long term care security.

This storm, brewing for some time, became particularly evident in the last three years through a series of disruptive events emanating from leading long term care insurers. In 2007, John Hancock and Genworth began raising rates by 20 percent on new policies sold. In 2008, Conseco, the Indiana-based insurer and one of the nation's largest sellers of long term care insurance, transferred its long term care policies to a state trust fund in Pennsylvania. It was estimated at the time that the transfer of polices to the Senior Health Insurance Co. of Pennsylvania, a state trust fund, would impact 140,000 policyholders. In September 2010, John Hancock made a stunning announcement that it would increase rates on in-force policies by 40 percent and would suspend group product sales, and in October, Genworth announced that it, too, would again raise rates on at least 26 percent of its in-force business.

The common factor driving this escalation of events is incorrectly pricing the costs for this product by underestimating longevity of policy holders and the level of policy persistence. Simply put, long term care insurers under priced their product and it has become increasingly expensive for them to keep the policies on the books for longer periods of time at the original price they were sold. Solutions to this situation have come in the form of rate increases on new and existing business, abandoning blocks of business and leaving it to the states to take over, or now most recently, exiting the market all together.

Genworth attributes their rate increases to, “persistency, or the number of people who will retain, rather than lapse, their policies over time – leading to higher claims than pricing assumed for these older policies.” Similarly, when John Hancock examined their claims experience between 1990 and 2010 they discovered “unfavorable claims patterns” as it was described by Marianne Harrison, president of John Hancock Long Term Care. They discovered that claims had doubled since they last examined their experience in 2006 and that the age group 80 and older had increased by a factor of 4. Length and severity of claims had risen in the same time period while termination of policies had decreased. The bottom line is that more people were living longer and using their policies for longer periods of time than had been expected. “Put simply, more people used the insurance than anticipated, reinforcing the value of the product to policyholders, but creating a pricing issue,” Hancock says.

In the case of Met Life’s announcement to leave the market, these same factors are also true. In their statement, they indicated a major reason for leaving the market is that they have more customers cashing in on their long-term-care policies and, at the same time, the cost of providing care is rising. "While this is a difficult decision, the financial challenges facing the [long-term-care insurance] industry in the current environment are well known," said Jodi Anatole, vice president of long-term-care products for MetLife.

Of course the irony of this situation is that Met Life is leaving the market at exactly the time that consumers need private market options to help pay for long term care more than ever. Starting in 2011 as many as 10,000 Baby Boomers a day will start going onto Social Security and Medicare. Those social safety net programs are already under tremendous stress to keep up with the current population’s demands. Combined with a weak economy undermining the availability of tax dollars to sustain them, these programs are going to start pushing the responsibility to pay for long term care back on the individual and their family. State Medicaid programs are under enormous stress to keep up as well. They are also cutting budgets, increasing barriers to entry and emphasizing funding long term care more and more with out-of-pocket money. As the economy continues to search for its footing and demand for access to these programs rise, this will be an escalating area of concern for all stake-holders across the country.